Buffett Indicator: UK Stock Market Valuations and Expected Future Returns
Updated at Sun, 24 Jan 2021 20:30:05 -0600
Country:
UK (updated daily) check out
Global Overview for detailed methodology.
The Stock Market is
Modestly Undervalued.
Ratio of total market cap over GDP: Recent 20 Year Maximum - 164.92%; Recent 20 Year Minimum - 72.42%; current -
96.44%Expected future annual return:
8.3%ETF Used for dividend yield:
EWU (Yield=
2.89%)
Market Index used:
FTSE 100 indexCurrent Annual GDP:
$3,095 billion US dollars or
2,259 in billions of national currency (GDP in Local Current Prices Annual Growth=
3.29%)
Data since year
1972
UK Historical GDP Growth
Historical GDP of
UK in billions of national currency. The GDP in local current prices has grown at the annual rate of
3.29% over the past 8 years. Please note this growth rate includes the effect of price inflation and it is NOT the real GDP growth rate. Current Annual GDP:
$3,095 billion US dollars or
2,259 in billions of national currency.
UK GDP (Billion, National Currency)
Historical Stock Market Cap
Historical total market of
UK in billions of national currency. This value is normalized using the data published by WorldBank.
FTSE 100 index is used for the normalization. Represents about 80% of total market index in UK, back to 1982. Use total market cap number of 1.8 trillion pounds as of June 30, 2011 to normalize FTSE All share index to total market cap.
UK Total Market Cap (Billion, National Currency)
Historical Ratio of Total Market Cap over GDP (%)
The current ratio of total market cap over GDP for
UK is
96.44%. The recent 20 year high was
164.92%; the recent 20 low was
72.42%. If we assume that the ratio will reverse to the recent 20 years mean of
113.73% over the next 8 years, the contribution to expected annual return is
2.08%. This is the detailed historical chart of the ratio.
UK Ratio of Total Market Cap over GDP (%)
Based on these historical valuations, we have divided market valuation into five zones:
Ratio = Total Market Cap / GDP |
Valuation |
Ratio ≤ 80% |
Significantly Undervalued |
80% < Ratio ≤ 102% |
Modestly Undervalued |
102% < Ratio ≤ 125% |
Fair Valued |
125% < Ratio ≤ 148% |
Modestly Overvalued |
Ratio > 148% |
Significantly Overvalued |
Where are we today (2021-01-25)? | Ratio = 96.44%, Modestly Undervalued |
Predicted and Actual Returns
From the equation presented on the U.S. market valuation page,
Investment Return (%) = Dividend Yield (%) + Business Growth (%) + (Re/Rb)(1/T)-1
We can compute the predicted and actual returns of the UK stock market over a given time period, T. In the calculation, we set T to equal eight years, the approximate length of a full economic cycle. The calculated results are presented in the chart below. The green line indicates the expected, or predicted return if the market ratio trends near the recent 20 years average ratio of 113.73% over the next eight years.
The blue line indicates the actual, annualized return of the UK stock market over eight years. We use “FTSE 100 index” to do the actual return calculation. We can see the calculations largely predicted the trend in the stock market as the blue line is closely parallel to the green line.
Predicted and Actual Returns of UK
Conclusion
The stock market of
UK is expected to return
8.3% a year for the coming years. This is from the contribution of economic growth in local current prices:
3.29%, Dividend Yield:
2.89% and valuation reverse to the mean
2.08%.
This is the projected return of the stock market in UK relative to other countries. Click on each bar in the chart to go to other countries:
You can go
here to see what international stocks Gurus are buying.
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